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Update on the Annual Tax on Enveloped Dwellings (ATED)

As highlighted in Alison Palmer’s article within this Property Plus publication, we are already aware that the protection from UK IHT with the use of a non UK company to hold UK residential property will be removed. However it does trigger the need to question the overall costs versus the benefit of such a company. Where ATED is charged and no IHT protection is available, it is likely that, for some at least, de–enveloping will be a real possibility. For others the cost of the ATED charge may be acceptable and it is important to consider all the facts and individual circumstances before making a long term decision.

In that context, I take this opportunity to review where we are now with ATED and the likely annual quantum. The tax came into effect from 1 April 2013 in relation to UK residential property which is owned by a Non Natural Person (NNP). An NNP includes a company, partnerships with company members and collective investment schemes. Broadly, property occupied by an individual and their family is caught if its value comes within the thresholds. Originally the property value threshold was £2m and dropped to £1 million from April 2015. Now, having been reduced to just £500,000 in April this year, the net of ATED has widened considerably. ATED is an annual charge and is levied according to the value bands set as follows:

Taxable Value of Property Annual Chargeable Amount
£500,000 to £1m £3,500
£1m to £2m £7,000
£2m to £5m £23,350
£5m to £10m £54,450
£10m to £20m £109,050
greater than £20m £218,200

There are exemptions which apply to ATED and examples include some commercial properties, including rental businesses and properties open to the public. Heritage properties and properties owned by charities continue to enjoy exemption.

Unless the property is going to be let out commercially, the ATED charge will represent a real annual cost. However, on a more positive note, the administration process of claiming relief was simplified last year and now allows taxpayers to file a single return for multiple properties if claiming the same relief. Prior to the Finance Act 2015, a separate return had to be filed for each property when claiming relief.

ATED Related Capital Gains

Disposals of UK residential property by a chargeable person give rise to an ATED related capital gain and this is taxed at the CGT rate of 28%. The ATED related gain is the gain arising from 5 April 2013 only but rising capital values since that time already mean significant gains have accrued in some cases.

Please contact me or your usual Mercer & Hole contact, if you wish to discuss this.



Date: 17th June, 2016
Author: Liz Cuthbertson


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